Today the Bank of Canada lowered its key interest rate by a quarter of a percent, down to 0.75%.

It tells you something about how exciting my life is that news like that is something I feel the need to talk about!

As a Realtor and a Mortgage Broker, my immediate thoughts are about what sort of impact a lower Bank of Canada rate will have on the real estate market.

A lower BOC rate will likely translate into a lower prime rate that lenders offer to their clients.  This means that variable rate mortgages, based on prime minus a certain percentage, will get a bit cheaper.

The last time the prime rate for banks was changed was way back in September, 2010.  Prime has been steady at 3% since then and a drop down to 2.75% will provide a nice bump to principal payments for those borrowers who chose a variable rate mortgage against a fixed rate mortgage.

For those looking to get a mortgage, I wouldn’t be surprised if lenders adjusted the discount on variable rate mortgages up to lessen the benefit.  For example, as of yesterday, you could see 3 year variable rate mortgages at prime minus 0.75%, for a rate of 2.25%.  That same mortgage if prime is lowered, would get you a rate of 2%.  My prediction is that lenders will use the lower rate on prime to decrease the discount they offer.  That would mean that instead of prime minus 0.75%, they might lend at prime minus 0.65%, for a rate of 2.10%.  If I’m right, then we can applaud my wisdom.  If I’m wrong, I will pretend to not know what you are talking about when you reference this.

Lower mortgage rates spur real estate, as more people can afford a home, or can afford slightly more expensive properties.  This rate drop is, however, being made by the Bank of Canada due to concern about the Canadian economy being strongly impacted by lower oil prices.  A slightly gloomier picture for the economy scares some potential buyers away, which tends to moderate prices to a certain extent.

In the short term, I believe that we will see an uptick in sale prices for a number of homes sold over the next two to four weeks.  Buyers will be impacted by the lower rates to pay a bit more than they were comfortable with before and the continued low inventory on the market will mean a bump in the sale prices.

By the time we hit the spring market, buyers will have adjusted to the new reality and I believe we will see more typical pricing for sale figures.

If you are considering buying or selling, I’d be happy to talk to you about what I think the impact might be on your specific home or in your specific geographic area.

As always, I would love to be responsible for what comes next.